11 Advantages & Disadvantages of Peer-to-Peer (P2P) Payment Apps

Do you use peer-to-peer payment apps such as Venmo or Zelle to send money to your friends and family or to pay for goods and services? If so, you’re not alone. In fact, Consumer Reports has revealed that 64% of all Americans use at least one peer-to-peer-payment app, including 81% of those between the ages of 18 and 29.

We know that many of our Addition Financial members use a P2P platform to make peer-to-peer payments, and that means we want to make sure that they understand the advantages and disadvantages of this type of payment, as well as how to protect themselves when using a P2P payment app. With that in mind, here are 11 advantages and disadvantages when using P2P payment apps.

How do peer to peer payment apps typically work?

Peer-to-peer payment apps were created to serve as an alternative to writing a check or paying in cash when repaying a friend or family member. For example, if you go out to dinner with a group of friends and one friend pays using a credit card, the other members of the group can send them money using a P2P app without giving away their bank account or personal information.

You may have your P2P payment accounts set up so that you need biometric authentication or enter a PIN to send money. This transaction is comparable the same as paying in cash, therefore P2P payment apps don’t offer much in the way of recourse if you send money to the wrong person.

The person who receives money from a P2P transaction has two options. The first is to leave that money in their P2P account for later use; the second is to transfer the money to their credit union or bank account. Peer to peer payment services require verification of your credit union or bank account before you can transfer funds.

11 advantages and disadvantages of P2P payment apps

As you might expect, there are benefits and risks of using P2P payment apps. It’s particularly important to understand the risks because not understanding them can increase your risk of falling victim to P2P payment fraud.

What are the advantages of P2P payment apps?

There are some real benefits to using P2P payment services when you need to send money to someone:

  1. P2P payment apps allow users to make a quick, cashless payment instead of stopping to use an ATM or writing a check. This makes them the most convenient option for many people.
  2. Money can be sent and received instantly, so everyone knows that the money was sent and received and there’s no confusion.
  3. For the most part, transaction fees are low and some P2P platforms don’t charge a fee at all if you’re sending money to friends and family.
  4. When used properly, peer to peer payment apps are secure. Some require biometric confirmation each time they are used, and all have the option to use a secure password or PIN to protect your information.
  5. The people who receive money from you don’t have access to any personal information, including your bank account information or your credit card information.
  6. Many P2P payment apps have partnered with traditional platforms. For example, many credit unions and banks have partnered with Zelle to make it easy for account holders to send and receive money without paying wire fees.

These advantages are significant and serve to illustrate why P2P payment services have become so popular and widely used.

What are the disadvantages of P2P payment apps?

Just as there are benefits to using peer-to-peer payment services, there are risks as well. It’s essential to understand the risks because they point in the direction of some things you can do to protect yourself:

  1. Getting a refund if you make a mistake can be difficult in some circumstances. Because P2P payments are essentially the same as using cash, the money is gone once you have sent it. With no middleman, such as a credit union, bank, or credit card company, it’s often up to the recipient to return the money.
  2. In most cases, you will pay a transaction fee to send or receive money. You may even be charged a fee for transferring money to your personal account at your credit union or bank, something that wouldn’t happen if you paid cash.
  3. Since there are many users on any given P2P payment service, human error is possible, and you might inadvertently send a payment to someone with a similar email address or user name to the intended recipient.
  4. Peer-to-peer payment apps are typically linked to a checking account or a credit card. That means if someone were to access your P2P payment account, you’d be at risk of them getting hold of your personal information.
  5. P2P payment fraud is on the rise and there’s always a risk that you could be targeted and lose money as a result.

These disadvantages show why it’s essential to be smart and cautious when using an app to make peer-to-peer payments.

How can you avoid losing money on P2P payment apps?

If you weigh the advantages and disadvantages and decide that you want to use a P2P payment app, then you should also know how to protect yourself.

Common P2P payment scams

Here’s a quick overview of some of the most common P2P payment scams that you should be aware of before using any of these apps:

  • Unexpected payment. You receive money you weren’t expecting from someone you don’t know. They ask you to send it back to them but the money they sent was acquired dishonestly and you may be on the hook for it if you send the money back or use it. Think of this scam as a modern version of money laundering.
  • Check fraud. Someone gives you a check to pay for something (whether it’s a product you’re selling online or for a gig) and “accidentally” overpays you, asking you to remit the difference using a P2P payment app.
  • Suspicious activity. Your credit union or bank contacts you saying they’ve spotted suspicious activity and asking you to verify your account information by clicking a link or to send money to reverse the transaction.
  • Purchase fraud. You use a P2P payment platform to send money to buy a product or pay for a service and never receive what you paid for.
  • Phone borrowing. Someone asks to borrow your phone and once they have their hands on it, they access your P2P payment apps and send money to themselves or to an accomplice.

We don’t share this information to scare you, but rather to make you aware of some of the most common types of scams that people have perpetrated while using these apps. 

Steps to take to protect yourself and your money when using P2P payment apps

The good news is that, while there are bad actors out there who will try to use P2P payment apps to steal your money, there are plenty of things you can do to protect yourself:

  • Send money only to people you know and trust.
  • Avoid sending payments using P2P payment apps for products you haven’t yet received or for services that haven’t yet been rendered.
  • If you receive an unexpected payment from someone you don’t know, don’t do anything with the money—even if they contact you to ask you to return it. Instead, report the suspicious transaction to the P2P service and let them deal with it.
  • Whenever possible, enable two-factor authentication (preferably with a biometric such as a fingerprint or facial recognition) to make it impossible for someone to use your app without your permission.
  • Set up notifications for all transactions. That way, if someone does try to use your account or sends you money in an attempt to defraud you, you can take care of it immediately.
  • Don’t lend your phone to anybody you don’t know or trust. If they’re insistent, offer to make a call or look something up on their behalf instead of handing your phone over to them.
  • Never provide your personal information to someone who contacts you claiming to be from your credit union or bank. No legitimate financial institution will contact you asking you to click a link to verify your account or ask you for your PIN or password.
  • Be extra cautious when sending money to someone for the first time. Make sure you have their email address and/or handle right before you click send, because if you send money to the wrong person, you’re unlikely to get it back.

If you do feel you’ve been targeted by a scammer, the best thing to do is to report it immediately. You should notify your credit union or bank, the P2P app being used, the local police department and the Federal Trade Commission.

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Your money is safe with Addition Financial

Using peer-to peer-payment apps can be convenient provided that you take the necessary precautions and use them safely. The 11 advantages and disadvantages we’ve listed here, and the tips we’ve provided to help you protect yourself, will help you decide whether you want to use a P2P payment service and keep your money safe if you do.

Are you looking for a financial institution that will protect your money and give you the tools you need to manage your finances? Addition Financial is here to help! Click here to read about the advantages of membership and open an account today.

The content provided here is not legal, tax, accounting, financial or investment advice. Please consult with legal, tax, accounting, financial or investment professionals based on your specific needs or questions you may have. We do not make any guarantees as to accuracy or completeness of this information, do not support any third-party companies, products, or services described here, and take no liability or legal obligations for your use of this information.